BofA Securities expects re-ratings for SBI and BoB

The brokerage has a ‘buy’ rating on both

and Bank of Baroda, with target prices of ₹600 and ₹130 and, respectively. SBI’s shares gained 0.3% to end at ₹462.35 on Tuesday, while ended 1.44% lower at ₹95.80.

The brokerage said the financial year ended March 2022 was arguably a watershed year for state-owned banks as their balance sheets are now healthy enough to start growing again after a long asset quality cycle. There has been a recovery in loan growth, deposit growth has been steady and asset quality has improved, said Bank of America. State-owned banks are now guiding for steady growth – in line with or better than the system, it said.

“PSBs’ aggregate loan growth in FY22 improved to 8.8% (versus private banks’ 16%) – the highest since FY14. More importantly, growth across PSBs was more broad-based across segments,” it added.

The brokerage firm said core profitability of public sector banks was back to the peaks last seen in financial year 2014-15, but the gap with private banks remained wide, posing scope for improvement. It sees scope for this gap to narrow due to tailwinds for public sector banks, such as higher growth appetite and better boost from the rate cycle.

On the asset quality front, Bank of America Securities said the asset quality for public sector banks was in a better shape than ever, led by a sharp decline in non-performing assets ratios and credit costs. “PSBs are now much closer to private banks’ level in terms of net NPA with SBI surpassing all. Credit cost for SBI was just around 50 basis points while (it was) 200-250 basis points for other PSBs and private banks,” it said.

Bank of America Securities pointed out that state-owned banks would need to raise capital with growth picking up, but it might become challenging in the current capital market. Though banks haven’t started planning capital raising so far, they only have a little surplus to support their target growth, it added.